The demand for home mortgage finance is growing stronger month by month - but those involved in helping the public still find that they are up against a surprising amount of ignorance and misinformation among clients, says Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance.
Some clients, he said, still approach bond originators or their banks expecting to get a loan at below prime rate, i.e. below 8.5%. This was possible when rates were at 12 to 15 percent but such loans are very seldom approved today.
“One has to appreciate that with the prime rate now so low, the bank’s ability to profit from bonds is reduced. It is illogical to expect them to agree to a sub-prime rate on today’s very low rates.”
Those who do achieve a loan at, say, 0,5% below prime, said van Alphen, almost invariably have impeccable credit ratings and are usually able to put down a 20% or larger deposit.
Although the banks have been criticised for this, says van Alphen, it is also perfectly reasonable for them to charge one or two percent above prime on affordable housing, the reason for this being that the risk associated with loans in this category have been shown historically to be higher than most.
The last year, said van Alphen, has time and again shown that it is essential to pre-qualify for a bond before you start looking for a home.
“Certain members of the public,” said van Alphen, “are driven around a whole range of suburbs, looking at a wide range of homes, only to find out later that they do not qualify for 80% of the stock that is being shown to them.”
For this reason, he said, many astute estate agents today insist that applicants are prequalified before they start home viewings.
A good bond originator, he said, will get a 95 to 100% acceptance rate on his bond applications, and on average, his division will achieve ten to 15 or more successful applications each month. This is because the client’s financial and credit position has been thoroughly investigated at the outset and if necessary been rectified, with the result that the application conforms exactly to what the banks expect.
If the client has a blemished credit record, this too, can often be rectified, although the process is likely to delay the application by six months.
To achieve a good hit rate, said van Alphen, it is absolutely essential to assemble all the documentation at the outset. The file should almost certainly include pay slips and bank statements over a three to six month period, as well as certain other vital information.
If the applicant is self-employed and trading as a CC or a company, is it essential that he pays himself a monthly salary and keeps a record of this for six months. The salary deposits would need to reflect in the applicant’s bank account if he has not done this in the past, he should delay his application by half a year and start doing it as soon as possible.
“It is not good enough to simply show that the CC or company is profitable. The bank will want to know exactly how much of the profit goes to the bond applicant.”
Sometimes, said van Alphen, an applicant will go straight to the bank with his application, which will be accepted by the first rung staff, quite possibly with minimum documentation attached. Subsequently, the applicant may find that the credit investigators at a higher level at the bank want additional information and then are quite likely to reject the request.
“Hopes are then dashed and the applicant goes away very disappointed.”
One reason for this, said van Alphen, is that the applicant may be dealing with an expert banking consultant able to advise on a wide range of banking investment subjects, but possibly not completely familiar with the bank’s bond award criteria. By way of contrast, he said, bond originators are focussed on this one field and are experts in it.
Van Alphen concluded his remarks by saying that whatever route the applicant takes he should not be discouraged if at first his application is rejected.
“As I have tried to point out, this is often the result of the application being incorrectly put together and this does happen when the person assisting the client, whether at the bank or elsewhere, is not yet an expert in this subject.”